Beijing’s Rare-Earth Controls Put Pressure on U.S. Strategy

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Highlights this week: China announces major results Export controls for rare earth elementsWashington and Beijing begin imposing steep tariffs Mutual Port feesand A British Espionage case Which involves the collapse of China.

Chinese export controls put pressure on US trade strategy

After China announced major new export controls on rare earths and related products last Thursday, US President Donald Trump responded by promising to impose 100% tariffs on all products coming from China starting November 1. Trump adopted a more conciliatory tone after seeing US markets decline on Friday, but his threat still stands.

China’s export controls, which apply to all countries, are a blow to both US defense supply chains and global industry. As Gerard DiPibo, an analyst at the RAND Corporation, points out, China’s recent moves are part of a broader system of controls designed to mirror the U.S. sanctions regime. China has used the same rules that the United States has applied to direct foreign products since 1959.

Realizing how powerful the US economic security system is has prompted China to create its own, and Trump’s threat is unlikely to dissuade Beijing from taking advantage of such a powerful tool.

China’s next moves will depend on how its leadership reads Trump. A serious and sustained threat to reimpose tariffs is something very different from another round of “Trump always evades” — the idea that Chinese commentators have already latched onto, that a US president abandons threats once he faces the consequences of making them.

Traders are certainly thinking along these lines, with markets rebounding since Trump took a softer tone.

Trump still wants a meeting with Chinese President Xi Jinping, and behind the scenes, US officials appear to be keeping diplomatic channels going. US Treasury Secretary Scott Besent said on Monday that China had “significantly de-escalated” although Beijing had not changed its overall stance on exports.

The problem for the Trump administration is that trade threats are more likely to hurt the United States than China. Since Trump launched the trade war this year, Chinese exporters have had great success in finding new markets. Last month, China’s exports to the United States fell year-on-year by 27 percent, but exports as a whole remained up by 8.3 percent.

In contrast, American farmers have found no new buyers for their soybeans – while Brazilian producers have stepped in, perhaps permanently, as an alternative in the Chinese market. This year has also revealed how many American companies rely on China. The holiday season is approaching, and price hikes could anger consumers: 73 to 78 percent of toys and 85 to 90 percent of Christmas goods sold in the United States are made in China.

Beijing is said to be confident of winning the first round of the trade conflict with Washington; This latest exchange is unlikely to convince Chinese officials otherwise.

Therefore, China’s control over rare earths will remain a serious obstacle to US action. The United States has ignored more than a decade of warnings about this problem. Now, the US Department of Defense is scrambling to build up a $1 billion stockpile of critical minerals, something that would be difficult to do without Chinese sources.

Perhaps a better strategy would be to heed the advice of former Chinese Finance Minister Deng Xiaoping: Hide your strength and wait for the right time. It is possible to break China’s grip on rare earths, but apparent panic about it may encourage Beijing to act while it still has the upper hand.

What we follow

Port wars. There is another conflict between the United States and China taking place at sea. Starting Tuesday, the United States is imposing additional port fees on ships built, owned or operated by Chinese companies. The current duty for Chinese-owned or Chinese-operated ships is $50 per ton and will rise to $140 per ton by 2028. China has imposed similar measures on ships linked to the United States but has exempted ships built in China.

The impact could be painful for both shipping and trade. Even a small container ship can weigh 20 thousand tons. For larger ships weighing more than 200,000 tons, total port costs can start at up to $10 million. As with tariffs, these costs are likely to be passed on to consumers.

Through these port fees, the Trump administration hopes to bring shipbuilding back to the United States, but it has a long way to go. China currently dominates the shipbuilding market, accounting for a 53.3 percent share, followed by South Korea (29.1 percent). Meanwhile, the US makes up just 0.1% of the market.

China is taking additional steps to expand its advance, announcing new measures this week targeting South Korean shipbuilders linked to the United States.

The case of espionage in the United Kingdom. The case brought by the British government against two British citizens accused of spying for China collapsed last month, due to the government’s refusal to formally classify China as a national security threat. The Public Prosecution requested the government to provide evidence of this classification for several months, but did not receive any response.

Which is strange, because Britain’s MI5 recently warned that members of parliament were being targeted by Chinese spies. Over the past two decades, British policy towards China has reflected frustrated economic hopes and recurring diplomatic clashes, especially over Hong Kong.

It is not clear whether the government obfuscation in this case was intentional or incompetent. Although Opposition Leader Kemi Badenoch tried to blame the Labor government, the issue began in 2023 when the Conservatives were still in power.

The NBA is back. After six years of fractured relations largely linked to concerns over free speech, a more cautious National Basketball Association is returning to China – the NBA’s most important foreign market. The Brooklyn Nets and Phoenix Suns will play two preseason games this weekend in Macau, the semi-autonomous region in southern China known for its casinos.

FP’s Rishi Iyengar writes about the fraught history of this relationship, and what comes next.

FP Most Read This Week

Technology and business

Electric vehicle fires. Like many companies in China, phone giant Xiaomi entered the electric car race last year. But it is now facing a public relations crisis after photos of one of its distinctive SU7 models engulfed in flames spread on Chinese social media. The footage was taken after a fatal collision in Chengdu, where the car doors could not be opened to save the person inside. On Monday, Xiaomi stock fell more than 5 percent.

Fires linked to electric vehicles have become a major problem in China, and the solutions so far — including a system that violently ejects batteries from the vehicle — appear more serious than the problem itself. Fires between freight vehicles have led to a ban in some residential complexes, although e-bikes have so far proven to pose a greater danger than cars.

Vertical dramas. Chinese cultural exports are notoriously lacking despite the country’s size, but Western media producers are investing in a new video format that China has pioneered: vertical dramas. With episodes as short as one minute, the vertical dramas are designed to be watched on phones by loyal audiences of short-form video apps like Douyin and TikTok.

The first few episodes of vertical dramas are often free, but viewers have to pay a fee to continue watching once they’re hooked. This model has created a $7 billion market in China that Western studios want to imitate in their countries. This is somewhat puzzling to me because the few free episodes I’ve watched seem poorly produced and full of clichés.

It is worth noting that the American company Quibi tried to follow a similar approach a few years ago, but it was a failure, as it drained $1.75 billion in capital investment before closing its doors two years after its founding. Maybe it was ahead of its time, or maybe its eight- to ten-minute episodes were still too long for an attention-atrophying audience.